The selling pressure is picking up against the indices and that is good news for the USD. This week’s gains against the Euro and British pound are currently being extended, resulting in the EUR/USD and GBP/USD trading in the red. For the first time since early December, both have broken beneath downside support on the daily chart.
At least for now, the global equities markets are driving the train. Activity in U.S. Treasuries has created a buzz among investors and their response has been to dump stocks at every turn. Both factors are influencing the forex, with the USD appearing to be on the verge of a fundamental transformation.
Of course, in trading, what is apparent today is often a mystery tomorrow. Today’s close in the U.S. equities markets is going to tell us a lot about where we are headed in coming sessions.
Sometimes a market is too cloudy to predict. Yesterday’s action in the EUR/USD was precisely that — a collision of numerous fundamentals and technicals. Now that things have shaken out a bit, the picture has become much clearer.
Here are the key levels to watch for the remainder of the forex session:
- Resistance(1): Bollinger MP, 1.2270
- Resistance(2): 20 Day EMA, 1.2283
- Support(1): Psyche Level, 1.2200
- Support(2): 62% Macro Retracement, 1.2153
An important observation on the EUR/USD daily timeframe is the Bollinger MP and Daily SMA crossover. This occurrence signals a shift in market sentiment and reinforces my current bearish bias.
Bottom Line: It is anyone’s guess how the markets are going to close for the week. However, volatility will be the rule as institutional players balance their positions going into the weekend.
A long trade from the 62% Fibonacci retracement level is a good entry to the bull. Buy orders at 1.2156 with an initial stop at 1.2119 are extremely likely to produce positive price action. The EUR/USD is trending south, so a modest profit target of 20-30 pips is optimal.
As always, trade smart and for tomorrow!